Infrastructure development and investment in Africa continue to be a priority
Infrastructure development and investment in Africa continue to be a priority
Infrastructure development and investment in Africa continue to be a priority. In the face of major global headwinds, it is the regions and countries with the strongest infrastructure base that are more resilient and that weather these storms more successfully. This was the case during the COVID-19 pandemic, which is evident again during the current global economic downturn. Africa’s weak infrastructure often means that the impact of such global challenges is almost always compounded with more dire outcomes than elsewhere. The resulting loss in competitiveness and weakened economies leads to constrained fiscal space, limiting investment in the infrastructure necessary for development. The widening infrastructure financing deficit is naturally followed by an even larger infrastructure gap as current infrastructure crumbles while demand for it increases. This sequence of outcomes ultimately traps the continent in a cycle of underinvestment. Changing course means doing things in a markedly different way. In recent years there has been growing momentum towards innovative approaches to bridge the yawning infrastructure gap and in particular, the financing shortfall that fuels it. Public Private Partnerships are gaining increased traction on the continent as a pivotal part of Africa’s project financing arsenal.
So just how wide is the infrastructure gap and its impact in Africa? The continent’s top multilateral development finance institution, the African Development Bank, estimates that infrastructure needs will top USD170 billion a year by 2025 with a financing deficit well in excess of USD100 billion. In practice what this gap means is that more than 770 million people on the continent had no access to electricity, according to a 2019 International Energy Agency study. It also means that people and businesses on the continent will have to contend with poor transport infrastructure quality and connectivity, which add to rising living costs. Meeting Africa’s infrastructure needs would provide the productive infrastructure stock necessary for industrialisation, which would aid significantly in addressing the problem of high unemployment and abject poverty. According to the International Finance Corporation, commensurate investment in Africa’s internet infrastructure would add as much as USD180 billion to continental GDP by 2025. Overall, such progress would also have positive global spillover effects by helping to address the challenges related to migration and extremism.
The COVID-19 pandemic laid bare Africa’s vulnerability from an infrastructure standpoint. While there was a particular focus on the strained healthcare systems, it was also evident that broader infrastructure investment was retreating. For example, the UNCTAD 2021 World Investment Report tracked international project finance announcements covering mostly large infrastructure projects noting that at the height of the pandemic, that measure plunged a massive 74% to some USD32 billion. Lower economic activity owing to weak market sentiment and government restrictions during the pandemic also adversely affected the viability of some projects, while construction delays for others led to cost overruns and legal challenges. While these factors all dampened investor appetite, the situation looked to turn a corner and rebound as the pandemic came under control. However, the current global economic headwinds present a new set of challenges for investment in African infrastructure. In a recent policy note entitled, “Is a Global Recession Imminent?” the World Bank highlights that weaker economic growth combined with high food and energy prices would force governments to spend more resources on mitigating their short-term impact and less on infrastructure. Furthermore, obtaining more sovereign debt to finance infrastructure development is increasingly difficult due to rising interest rates and the fact that most countries are already in various levels of debt distress.
In the face of the monumental mission to meet Africa’s infrastructure needs, no single entity or sector can fulfil this requirement alone. Innovative and collaborative approaches to project financing and infrastructure investment are imperative. Development Finance Institutions remain the main source of long-term infrastructure project finance on the continent, with the African Development Bank investing some USD44 billion dollars in a little over half a decade. And yet they can still do even more beyond their own limited capital. By using their unique circumstances to shoulder political risk, receive certain government protections, access restricted markets, deploying other de-risking instruments, all while providing long-term capital, DFIs can help to crowd in sovereign and pension funds, local and regional banks, specialist infrastructure funds, private equity and private debt among others. Therefore, multi-finance and blended solutions are the way to go in addressing the African infrastructure finance gap. For instance, the African Development Bank’s Alliance for Green Infrastructure in Africa recently announced a collaborative effort with Africa 50 to mobilise half a billion dollars that will support early-stage project development.
Public Private Partnerships (PPPs), where governments allot concessions to private entities to finance and construct infrastructure, stand out as a way to channel direct private investment into project finance. Despite their complexity and perceived higher transaction costs, PPPs are growing increasingly important on the continent. This is in part due to the fact that PPPs financed by private investors allow for the project cost to the public to be spread over a long time period that aligns with the expected benefits of the project. Government resources, where available, are therefore freed up to be deployed into areas where private investment may not be possible or may be deemed inappropriate. Key examples of recent projects include Kenya’s first PPP road project, the Nairobi-Nakuru-Mau Summit road PPP, which the African Development Bank funded with a USD150 million investment. Another is the multi-billion dollar Nador West Med Port Project in Morocco, which the bank co-financed with the European Bank for Reconstruction and Development. In fact, Morocco is fast emerging as a leader in PPPs with several notably successful projects. This is underpinned in part by the Moroccan government’s sustained public sector reforms, including the 2020 amendments to the PPP law, which extended the scope of application to local authorities and legal persons that are responsible for executing a significant portion of public investments in the country.
It is, therefore, fitting that Morocco will this year serve as the Host Partner of Choice for the 13th Africa Public-Private Partnerships Conference. A high-level cross-section of professionals representing PPP Units, Ministries, State-owned Enterprises, Public Utilities, Transaction, Legal and Technical Advisors, Consultants, and Bankers will gather in Marrakech from the 24th to the 26th of October 2023 to unpack the theme, “Accelerating Project Delivery and Partnerships”. The event will comprise certified training on PPP and a 2-day conference. It will feature active and upcoming projects in renewable energy, waste to energy, wastewater, bulk water, bulk transport and infrastructure and spotlight new projects in social service PPPs. Participants will explore emerging trends and issues in PPPs this past year as well as focussing on project readiness, best practices in deal structuring and contract structuring; monitoring and partnership for the long term. There will also be a special session dedicated to showcasing the project opportunities forming part of Morocco’s new era of infrastructure. AMETrade and the government of Morocco invite policymakers and private sector players in the PPP space to join the continent’s leading event focusing solely on developing Public-Private Partnerships to deliver on Africa’s long-term infrastructure and development needs.